NT Govt releases gas in bid to keep refinery running

The Northern Territory Government has guaranteed a 10-year gas supply to Rio Tinto's alumina refinery in north-east Arnhem Land. Rio Tinto is considering closing the refinery unless it can switch the plant's power source from expensive heavy fuel oil to gas. The Territory government wants a guarantee that Rio Tinto will keep the refinery open, although it hasn't specified for how long.

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TIM PALMER: The Northern Territory Government has agreed to hand over to mining giant Rio Tinto 10 year's worth of the gas the state bought to generate its own electricity, in a bid to keep open an alumina refinery on the Gove Peninsula.

Rio Tinto demanded the gas, saying if it couldn't get it from the government, it might close the loss-making refinery rather than keep running it on expensive heavy fuel oil.

Gas will now power the alumina plant which is the biggest employer in the mining town of Nhulunbuy in north-east Arnhem Land.

In return for selling off its gas, the Territory Government wants a guarantee that Rio Tinto will keep the refinery open, although it hasn't specified for how long.

Sara Everingham reports from Darwin.

SARA EVERINGHAM: With the clock ticking on Rio Tinto's decision on its alumina refinery, the Northern Territory Government has agreed to the company's conditions for keeping it open.

The Northern Territory Chief Minister, Terry Mills.

TERRY MILLS: The decision is this: that we'll make available the gas that is required to keep the Pacific Aluminium operation going. It will be subject to a confirmation from Rio in London in the next day or two when the board meets, that they will keep the refinery in operation.

SARA EVERINGHAM: Terry Mills has been under pressure to find a solution that will help keep the refinery open. Rio Tinto's bauxite mine and alumina refinery at Gove make up the Territory's largest private enterprise.

Terry Mills travelled overseas last week for meetings with gas suppliers and with Rio Tinto's new chief executive Sam Walsh.

TERRY MILLS: And I must say on the side that we've got Sam Walsh who is an Australian who understands the needs of the Territory and of that region in particular. He wants it to remain. The only way that he could persuade a board to provide that support - if there was gas available.

SARA EVERINGHAM: The company wants to switch the refinery from being powered by expensive heavy fuel oil to gas, the problem is there's none available on the open market. Today, the Territory Government announced it will release 10 years worth of gas that had been allocated to the Territory's power supply. The gas company which provides the Territory with power will now sell that gas to Rio Tinto.

Terry Mills had been concerned that would expose Territorians to higher power prices in the future. While he hasn't provided details, he says he's confident more gas will come on the market given the level of exploration in the Territory.

TERRY MILLS: There are things that I have discovered on my trips and through interviews that there is a lot of significant activity going on that's of commercial in confidence that gives me the confidence and the cabinet the confidence that there is a greater capacity for supply going forward.

But what we do know is there is a large amount of money being spent in the Northern Territory. There are known reserves and let's just increase this activity so that we can reduce our exposure going forward.

SARA EVERINGHAM: And Terry Mills is selling his decision as a win for securing future energy supplies. His talks with the Federal Government on this issue have included discussions about linking energy supplies in the Territory to the eastern seaboard through a pipeline.

TERRY MILLS: It's a very important part of this strategy - being able to use this issue to provide leverage for the Northern Territory to have its gas infrastructure not only enlarged but connected to the eastern seaboard is a significant gain.

SARA EVERINGHAM: The Rio Tinto subsidiary, Pacific Aluminium, which operates the refinery at Gove says it will give full consideration to the Northern Territory Government's gas proposal.